Very interesting (and rather ominous) op-ed on China’s property market in today’s FT by George Magnus, former chief economist of, and now independent economic adviser to, UBS.

There have been murmurings about the health China’s property market for a while, but, says George, now we should really be paying attention.

Why?

Because:

While official figures show that property prices in 70 cities were 8% higher in March than a year ago, in reality prices have actually fallen since 2013.

As a result of chronic over-supply, starts, completions and sales of property have fallen markedly.

Inventories of unsold homes in Beijing are reported to have risen from 7 to 12 months supply in the year to April.

In ‘tier two’ cities, the overhang of unsold homes has risen to about 15 months.

In tier three and four cities, this has risen to 24 months.

The anti-corruption crackdown by Beijing has dis-incentivised the elite to build up ostentatious property wealth. This is taking its toll on the market (in China the richest 1% of households is estimated to own about a third of residential property).

The tightening of credit terms, including funding for property developers, is also bringing downward pressure to bear on the market.

Beijing may have the means to stave off the immediate impact of a property crunch (e.g. extra spending on infrastructure, faster urbanistaion inland, relaxation of restraints on home buying). But the problem is, taken too far, this could derail the longer term objective of moving the Chinese economy towards consumption.